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WCI Eases Liquidity Worries but Cuts Cash View

The condo builder says it isn't in default of any credit pacts.

In an attempt to soothe worried investors, Florida condo builder

WCI Communities

(WCI)

said it has ample free cash flow to cover its large amount of debt, and specified that it does not appear to be in default on any of its credit agreements.

Liquidity worries are becoming a major issue for homebuilder investors in recent weeks. Shares of WCI, in particular, have plunged 64% since the beginning of July after the builder rejected a buyout offer and investors fretted about the company's debt load.

Elsewhere, fellow homebuilder

Standard Pacific

(SPF)

was down 25% Monday on market fears about the company's financial condition, according to one source.

For its part, WCI now expects to generate an additional $400 million to $600 million of free cash flow for the remainder of the year, which is on top of $130 million of free cash flow already generated, the company said Monday.

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"WCI continues to have sufficient liquidity and available credit," said Jerry Starkey, the company's CEO.

The press release, however, represented a quiet guidance cut. WCI said in the first quarter that it expected $1 billion of cash flow from operations.

On that earnings call, management confirmed that that figure was close to the free cash flow total, since the company would have minimal capital expenditures this year. (A company's free cash flow equals net cash flow from operations minus capital expenditures.)

"It sounds like they're trying to help people believe, 'Look, the company is solvent, and we have cash, and we're going to meet our debt obligations,'" says Alex Barron, a homebuilder analyst with Agency Trading.

"The thing we still have to figure out is what the default rate will be in the second half," Barron says. "That's going to drive what the cash flow really is at end of the day."

According to its first quarter 10-Q filing, WCI had $10 million of debt payments due in 2007 and $336 million of debt coming due in 2008. The company has nearly $2 billion of total debt, representing 67% of its total capital as of the end of March.

WCI also said Monday that it does not appear to be in default under any of its credit agreements, even though the quarterly review by its external accounts is not yet complete.

The company has also begun discussions with its lender to amend its credit agreements to "provide broader latitude to operate during this protracted downturn," it said.

Earlier this year, WCI rejected a $22-a-share bid from financier Carl Icahn and said it would try to find another buyer. However, the company indicated two weeks ago that the process has hit snags due to the deteriorating conditions in the housing and debt markets.

WCI shares recently were up 1.4% to $6.03. The stock hit a 52-week low of $4.95 on Friday, compared with the 52-week high of $24.20 set in February.

Standard Pacific shares, meanwhile, were tumbling $3.03, or 25%, to $9.16 on no news.